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Lululemon Expects More Write-Offs on Pants

Lululemon Athletica Inc.
LULU 0.28%
expects to write off yoga pants that have yet to be delivered for the summer season and wouldn't be specific about when the key product could be back in stores.

Lululemon expects the transparency issue related to some of its yoga pants to reduce first-quarter earnings by 11 cents to 12 cents a share. Andrew Dowell reports.

The comments, on a conference call to discuss fourth-quarter earnings, showed that the problem with unacceptably see-through yoga pants has expanded from the March 1 shipment that was recalled last weekend to product that is still in factories or being shipped.

The company said it expects write-offs to reduce its revenue by another $45 million to $50 million over the rest of the year, mostly in the second quarter. That follows a hit of $12 million to $17 million in the first quarter, which ends in the spring.

The company is still testing the summer product but thinks a full write-off is likely. Chief Executive Christine Day said there is a lot of product on the water that will arrive in a couple of days, so the company should have a better idea of the extent of the problem in a week.

"Our first step is to see what is correct," Ms. Day said on the call. "Meanwhile we are working with our suppliers to do some additional testing of any old stock that we have to see what we can do to flow in, and we won't have those answers probably for the next week or so."

Lululemon said Monday that a manufacturing problem that left some of its black Luon pants unacceptably see-through. On Thursday, it said its fiscal fourth-quarter profit rose to $109.4 million from $73.5 million a year earlier. Revenue for the quarter, which ended Feb. 3, climbed 31% to $485.5 million.

Earlier

Lululemon said it was pulling its popular black yoga pants from stores after some of them were found to be overly sheer. Shares tumbled. Andria Cheng reports. Photo: Reuters.

Ms. Day apologized for the quality problem and said the company has added staff and is tightening controls to prevent a recurrence. She also said the problem would have been difficult to catch before shipment.

A manufacturing problem has left some Lululemon pants see-through.
Rob Bennett for The Wall Street Journal

"The only way that you can actually test for the issue is to put the pants on and bend over," she said on the call. "It wasn't until we got into the store and started putting it on people that we could actually see the issue."

As for quality control, "We've had a standard metric-based system ... for a very long time that controls it within the environment at the manufacturer," Ms. Day said. But there are "a couple of gaps that we found" that are harder to measure and really are more subjective," she said. "And that's certainly one area that we feel that we can do a better job of controlling.... We have to do a better job of controlling or creating standards for that process as we're shipping to more locations to manufacture."